Dollar falls as Fed taper bets recede, currency volatility wanes

The dollar weakened against most of its major peers after Federal Reserve Chairman Ben S. Bernanke damped speculation that a reduction of U.S. monetary stimulus was imminent.

The greenback also slid after the People’s Bank of China said it would remove limits on lending rates. The yen gained before upper-house elections in Japan. Indonesia’s rupiah weakened for a record 11th day as the central bank manages a gradual depreciation of the onshore exchange rate toward offshore levels. Bernanke told the Senate Banking Committee yesterday it was “way too early to make any judgment” as to whether a tapering of asset purchases would start in September.

“After Bernanke’s comments this week, it’s clear that the door is wide open for a number of different scenarios, including increasing asset purchases if that becomes necessary,” Omer Esiner, chief market analyst in Washington at the currency brokerage Commonwealth Foreign Exchange Inc., said in a phone interview. “The idea for a September taper is still tentatively on the table, but there is a risk that some softness in U.S. data might ultimately push that back to around December.”

The dollar declined 0.1% to 100.29 yen at 9:01 a.m. New York time after earlier appreciating as much as 0.4%. It has gained 1.1% on the week. The U.S. currency was little changed at $1.3103 per euro, headed for a 0.3% weekly decline. The euro lost 0.1% to 131.47 yen.

The greenback will trade within a range of $1.28 to $1.33 per euro for the coming weeks, according to Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. It will probably rise to 102 yen in the next two weeks, before climbing to 110 within six-to-12 months, he said.

Bernanke Report

Bernanke yesterday delivered his semi-annual report on monetary policy to the Senate panel after telling the House Financial Services Committee the day before that he’ll take a wait-and-see stance on stimulus.

The U.S. central bank buys $85 billion of Treasuries and mortgage debt each month as part of its third round of quantitative-easing stimulus to cap borrowing costs. Bernanke said last month the purchases may slow this year and stop in the middle of next year if economic growth meets policy makers’ projections.

“Investors have been reassured that monetary policy will remain in place for the foreseeable future from the major central banks and that’s helping to restore some stability to broader financial markets,” Hardman said.